Study suggests neither cap-and-trade nor carbon tax have made significant impact on reducing GHG emissions
The European Union implemented a cap and trade scheme in 2005 for reducing carbon emissions; Scandinavian nations (including the non-EU state of Norway) had independently imposed a carbon tax in the 1990s as part of their effort to reduce carbon emissions. US researchers have tracked the carbon disclosures from both regions of Europe and found that neither the EU’s carbon allocation scheme nor Scandinavia’s carbon taxes have made a significant impact on reducing greenhouse gas emissions.
Writing in the International Journal of Critical Accounting, Martin Freedman of Towson University and colleagues explain that when the Kyoto Protocol went into effect in 2005, the EU-15 designed a system of tradable carbon allowances as a preliminary step in the implementation of Kyoto. Freedman and colleagues looked at selected firms affected by Kyoto and analysed their disclosures on reduction of carbon emissions in Europe.
The team reports that on the whole neither the carbon tax nor the cap-and-trade system appears to have been very effective in achieving the goals of Kyoto during the period studied. It is impossible to say whether or not they led to any measurable changes in industry, according to the team.
The EU committed to reducing its greenhouse gas emissions by 8% of the 1990 level with a deadline of 2012. The data analysed so far does not suggest that these targets will be met in time. With much of the world experiencing a recession, and with weather patterns in flux, other variables may contaminate any findings from an extended analysis, the team says.
Based on the data from EU ETS and the carbon market data, we determined that it is not possible to say which method was more successful. Much of the success depends on setting limits that will change behaviour. Since these limits have economic consequences, finding the political will to implement these changes is a difficult undertaking. Although some of the taxes might have caused changes in industries and some of the allocations may have altered behaviour, on the whole neither system appeared very effective.
...This study has some limitations. Only a snapshot of data concerning carbon emissions over a unique three year period was examined. It is possible that examining different aspects of carbon emissions and conducting that examination over a longer period would have led to other conclusions. Also, focusing on the Scandinavian nations, Germany, and the UK represents a minority of the EU-15, so this provides only a partial analysis of the European experience with cap and trade and carbon taxes.—Freedman et al.
Freedman, M., Freedman, O. and Stagliano, A.J. (2012) ‘Greenhouse gas disclosures: evidence from the EU response to Kyoto’, Int. J. Critical Accounting, Vol. 4, No. 3, pp.237–264. doi: 10.1504/IJCA.2012.047362